From AFL-CIO president Richard Trumpka:
So, the financial services industry says it wants to “earn back the trust of the American people.”
That must mean it’s loosening up loans to small businesses and investing money in communities hard hit by the nation’s jobs crisis, right?
Actually not. According to the Financial Services Roundtable, which represents the 150 largest banks and insurance companies, “earning back the trust of the American people” means spending millions of dollars on a public relations campaign to make Big Banks look warm and fuzzy.
Here’s a message for the corporations that took $700 billion in our taxpayer bailout dollars: America’s 17 million jobless workers can’t feed their families on PR. Link to article…
Because it continues to bug me so much here is the full article From the New York Times:
As Greece has tottered on the brink of fiscal chaos, threatening to drag much of Europe down with it, Wall Street’s role in the fiasco has drawn well-deserved scorn.
First came the news that Greece had entered into derivatives transactions with Goldman Sachs and other banks to hide its public debt. Then came reports that some of those same banks and various hedge funds were using credit default swaps — the type of derivative that kneecapped the American International Group — to bet on the likelihood of a Greek default and using derivatives to wager on a drop in the euro.
European leaders have called for an inquiry into the Greek crisis. Ben Bernanke, the Federal Reserve chairman, has told Congress that the Fed is “looking into” Wall Street’s deals with Greece, and the Justice Department is investigating the euro bets. That is better than turning a blind eye, but it is not nearly enough.
The bigger problem is in America, where markets are supposed to be fair and transparent. These particular — and particularly complicated — instruments are traded privately among banks, their clients and other investors with virtually no regulation or oversight.
The Obama administration and Congress have been talking for a year about fixing the derivatives market. Big banks have been lobbying to block change. And the longer it takes, the weaker the proposed new rules become.
Here are some of the problems that must be fixed:
NO TRANSPARENCY Derivatives are supposed to reduce and spread risk. In a credit default swap, for instance, a bond investor pays a fee to a counterparty, usually a bank, that agrees to pay the investor if the bond defaults. But because the markets in which they trade are largely unregulated, derivatives can too easily become tools for dangerous risk-taking, vast speculation and dodgy accounting.
A big part of the problem is that derivatives are traded as private one-on-one contracts. That means big profits for banks since clients can’t compare offerings. Private markets also lack the rules that prevail in regulated markets — like capital requirements, record keeping and disclosure — that are essential for regulators and investors to monitor and control risk.
That is why it is so essential to move derivative trades onto fully transparent exchanges. The administration originally embraced that idea, with exceptions only for occasional, unique contracts. But when the Treasury proposed legislation in August, it included huge loopholes, and a derivative reform bill that passed the House in December has many of the same problems. (The Senate has yet to introduce a reform bill.)
Both the administration and the House would exclude from exchange trading the estimated $50 trillion market in foreign exchange swaps — similar to the derivatives Greece used to hide its debt. The rationale for the exclusion never has been clearly explained.
The Treasury proposal and House bill also would exclude transactions that occur between big banks and many of their corporate clients from the exchange trading requirement, ostensibly because those deals are only for minimizing business risks, not for speculation or for window-dressing the books. That’s debatable. But even if true, other derivatives users would almost inevitably find ways to exploit such a broad exemption.
What is clear about the exemptions is that they would help to preserve banks’ profits. What is also clear is that they would defeat the goals of reform: to lower risk, increase transparency and foster efficiency.
LIMITED POWER TO STOP ABUSES When the House put out a draft of new rules in October, it sensibly gave regulators the power to ban abusive derivatives — ones that are not necessarily fraudulent, but potentially damaging to the system. Derivatives investors who stand to make huge profits if a company or country defaults, for example, might try to provoke default — a situation that regulators should be able to prevent. In the final House bill, however, the ban was replaced with a requirement that regulators simply report to Congress if they believe abuses are occurring.
NO STATE REGULATION, EITHER Current law also exempts unregulated derivatives from state antigambling laws. That means that states have no power to police their use for excessive speculation. Treasury and House reform proposals have called for maintaining the federal pre-emption of state antigambling laws. Pre-emption could be tolerable if derivatives were traded on fully regulated exchanges. But as long as many derivative products and transactions are exempted from fully regulated exchange trading, pre-emption of state antigambling laws is a license for, well, gambling.
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The big banks claim that derivatives are used to hedge risk, not for excessive speculation. The best way to monitor that claim is to execute the transactions on fully regulated exchanges, pass rules and laws to ensure stability, and appoint and empower regulators with independence and good judgment to enforce compliance.
Without effective reform, the derivative-driven financial crisis in the United States that exploded in 2008, and the Greek debt crisis, circa 2010, will be mere way stations on the road to greater calamities.
From The Wall Street Journal:
Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt.
No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.
How widespread is this? More than 11 million families are in “negative equity”—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That’s a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That’s true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.
Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?
It’s time for some tough talk.
Stop trying to chase your lost equity. That money is gone. Don’t think like the gambler who blows more and more cash trying to win back his losses. That’s how a lot of people turn a small loss into a big one. Link to article…
From The Huffington Post:
Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year.The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request means the total bill for the duo will top $126 billion. Link to article…
From Reuters:
Goldman Sachs Group Inc’s (GS.N) board has rejected demands from shareholders that the firm investigate recent compensation awards, recoup excessive compensation and reform pay practices.Wall Street’s dominant bank, criticized for paying billions of dollars in bonuses soon after the taxpayer bailout of the banking industry, reported the board’s decision in a regulatory filing on Monday.
Goldman reported the shareholder demands last year and said at the time that its board was considering them. The firm did not name the shareholders who made the demands.
Goldman could not be immediately reached for comment. Link to article…
From The New Republic:
What can the Obama administration do to alleviate this suffering? Turns out, it doesn’t need a new plan to modify mortgages, since there’s a very good old plan on the shelf.
The Great Depression did not begin with predatory mortgage lending, but economic conditions predictably led to a foreclosure crisis. More than 250,000 families lost their homes to foreclosure in 1932. And every day brought a thousand new foreclosures in the early months of 1933.
As part of its initial legislative barrage on the economic crisis, the Roosevelt administration created the Home Owners’ Loan Corporation (“HOLC”) in June of 1933, just three months after entering office. The HOLC purchased distressed mortgages from banks, and then negotiated new, more affordable mortgages with the homeowner. Before it ran out of capital in 1935, the HOLC purchased a little more than one million mortgages, or about one in six of the urban home mortgages. (There was a similar program for farm mortgages).
Homeowners applied to the HOLC to buy their mortgage, so the HOLC was able to pick and choose salvageable mortgages. HOLC mortgages required less equity than banks required (20 percent instead of 35 percent) and had lower interest rates (five percent instead of eight percent). The HOLC was indulgent of late or missed payments, and patiently worked with struggling borrowers to prevent default. Still, times were hard and almost 20 percent of HOLC’s mortgages ended in foreclosure.
When the last mortgage was paid off in 1951, the HOLC had turned a slight profit. Arthur M. Schlesinger, Jr., wrote that the HOLC “averted the threatened collapse of the real estate market and enabled financial institutions to return to the mortgage-lending business. … Most important of all, by enabling thousands of Americans to save their homes, it strengthened their stake both in the existing order and in the New Deal. Probably no single measure consolidated so much middle-class support for the Administration.” Link to article…
From The New Republic:
Why would anyone regard 20 years of reckless expansion, a massive global crisis, and the most generous bailout in recorded history as the recipe for creating “right-sized” banks? There is absolutely no evidence, for example, that the increase in bank scale since the mid-’90s has brought social benefits. (There are no economies of scale for banks above $100 billion in total assets, but our biggest banks are now in the $800 billion$2 trillion range–and those figures do not properly account for their holdings of and potential losses on derivatives.) By contrast, the huge social costs are readily apparent–in terms of direct financial rescues, the fiscal stimulus needed to prevent another Great Depression, and the appalling number of lost jobs (eight million gone since December 2007, and still counting). Volcker Rules or no, the president apparently still doesn’t get this. Link to article…
From The Huffington Post:
Last week, when President Obama was asked about the $9 million bonus for Goldman Sachs CEO Lloyd Blankfein, he described Blankfein as a savvy businessman, adding that Americans don’t begrudge people being rewarded for success. While the White House later qualified Obama’s comment about Blankfein and his fellow bank executives, it’s worth examining more closely some of the ways in which Blankfein and the Goldman gang were “savvy.”
Perhaps the Goldman gang’s best claim to savvy was in buying up hundreds of billions of dollars of mortgages and packaging them into mortgage backed securities, and more complex derivative instruments, and selling them all over the world. Blankfein and Goldman earned tens of billions of dollars on these deals. The great trick was that many of the loans put into these securities were issued by banks filling in phony information so that borrowers could get loans that they would not be able to repay. But this was not Goldman’s concern. They made money on the packaging and the selling of the securities. Link to article…
From The Center for Responsive Politics:
In all, federal lobbyists’ clients spent more than $3.47 billion last year, often driven to Washington, D.C.’s power centers and halls of influence by political issues central to the age: health care reform, financial reform, energy policy.
That figure represents a more than 5 percent increase over $3.3 billion worth of federal lobbying recorded in 2008, the previous all-time annual high for lobbying expenditures. And it comes in a year when a recession persisted, the dollar’s value against major foreign currencies declined and joblessness rates increased. Link to article…
From The Huffington Post:
New Mexico’s House of Representatives voted (65-0) Monday to pass a bill that allows the state to move $2 billion – $5 billion of state funds to credit unions and small banks. Link to article…
From OpenSecrets.org:
Finance, Insurance and Real Estate concerns contributed $476 million towards influencing the 2008 election:
From The Washington Post:
Even the pros are taking a beating. The Mortgage Bankers Association, its membership expert in real estate, sold its $90 million headquarters in downtown Washington on Friday for $41 million.
The three-year-old, 10-story building at 1331 L St. NW — built just before the office market soured — was bought by the CoStar Group, a commercial real estate information firm that plans to move its headquarters from Bethesda to the District. The city, which has been negotiating with CoStar for several months, offered the company a $6 million break on its property taxes to lure it from Maryland.
“We have a huge demand for space for our headquarters. This was too great an opportunity to pass up,” said Andrew Florance, chief executive of CoStar Group. “It’s a quality building at a rock-bottom price,” he added. “We think we’ll save tens of millions of dollars over the next decade.”
The sale comes as commercial real estate troubles are rapidly multiplying in the Washington area. At least 20 percent of commercial properties in the region are worth less than their mortgages, experts say, compared with less than 1 percent before the recession. Link to article…
From the Huffington Post:
Bailout watchdog and middle-class advocate Elizabeth Warren is accusing Wall Street CEOs of abusing the public’s trust and is challenging them to step up and support financial reform — for the nation’s benefit as well as their own.
In an opinion piece in Tuesday’s Wall Street Journal, Warren writes that the lack of strong consumer rules has set off a competition to see which firms can make the most profits by tricking the most consumers.
For years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren’t selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees. Link to article…
From McClatchy.com:
A five-month McClatchy investigation reveals how Wall Street colossus Goldman Sachs peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst. Link to article…
From The Baseline Scenario:
The White House is floating, ever so gently, the notion that they are open to nominations for the position of “Tim Geithner’s Successor.”
It’s not clear if they mean this job is likely to be advertised formally sometime in 2012 or 20 minutes after the November midterms. Nor is it obvious if this is a real request for proposals – it could be just an effort to make critics “put up or shut up.”
Fortunately, there is an entirely plausible successor already in waiting, ready now or whenever the president finally realizes the need to fundamentally change banking policy. Link to article…